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Exceptions to the Rule: Bypassing the California Transition Charge

Fortnightly Magazine - November 15 1996

installing new microgeneration. How regulators will respond to such requests is uncertain.

The bill however, does specifically exempt improvements to existing cogeneration and allows the installation of fuel cells to reduce CTC-compromised load, unless the California Energy Commission (CEC) holds otherwise.

Irrigation districts

By far the most far-reaching CTC exemptions fall to irrigation districts (em a total of 185 Mw of CTC exemptions phased in over five years (em beginning in 1997, one year ahead of general direct-access competition. Some analysts and utilities claim these exemptions will "cost" up to $87 million, with the liability spread to other customers within the commercial/ agricultural rate classes that must bear the CTC. Others, however, argue that restrictions on the exemptions will limit their economic impact.

For example, the bill says that costs associated with public-agency CTC exemptions can be collected from other customers (presumably through the public benefits charge), but only $50 million of any balance remaining after 2002 would be eligible for recovery.

The lion's share of the exemption (em 75 Mw (em goes to the Merced Irrigation District (MDID), which only recently joined the ranks of irrigation districts that also serve as utility retail power sellers. Garith Krause, MDID's chief financial officer, says the exemption was part of a compromise meant to protect irrigation districts' independent, legal, unlimited authority to act as retailers [Water Code Sec. 22115].

According to the CEC, there are at least 67 irrigation districts in the state. Though only four currently sell power to retail customers (em Merced, Modesto, Turlock, and Imperial (em the state water code could allow many others to enter the field.

Many irrigation districts and other water agencies were preparing for competitive power opportunities through aggregation plans being formulated by the Association of California Water Agencies. Although most of these districts and agencies (em such as the 2.5 Mw Delano-Earlimont Irrigation District (em have small individual loads, heavy use in summer peak periods causes a higher-than-average utility rate. Given the early-entry advantages of AB 1890, several of these districts and agencies could combine with local customers to take advantage of their share of these CTC exemptions.

MDID appears to be the big winner from this exemption, along with a few customers it has targeted in the town of Livingston, where it has already spent about $2.5 million to build a substation and extend distribution lines to serve the Foster Poultry Farms facility and adjacent energy users.

Although load covered by the CTC exemption must be generally within MDID's territory and served by district distribution facilities, the law also allows MDID to expand its reach to cover the nearby Castle Air Force Base.

Krause notes that while more than 300 Mw of electric load exists in eastern Merced County, "it's unlikely we could have gotten it all" (em certainly not without fighting PG&E over collecting the CTC. The 75-Mw CTC exemption afforded by the new law will be opened up 15 Mw each year of the exemption period, so MDID should be able to compete more aggressively later.

The CEC will allocate the other 110